Market News – January 21, 2020

HERE COME THE NEW HOMES:  “Housing starts” measures the number of new residential construction projects begun in any particular month.  Housing starts in December were over 16% better than the month before, and 40.8% better than December of 2018.  December’s number was the highest it has been since December of 2006 (end of the bubble).  This is an industry that needed a boost, and it seems to have received what it needed with the Federal Reserve cutting interest rates three times last year.  December also had very nice building weather across the country.

HERE COME THE NEW LUXURY APARTMENTS:  Builders are already on track to complete two times more apartments in 2020 than in 2019.  The vast majority of these apartments (about 80%) are aimed at the more affluent tenants, or what the real estate industry calls “Class A” properties.  According to one analysis I read this week, property developers’ costs for land acquisition and construction have become so high that catering to the affluent renter is the best way to make a profit.

INVESTORS LIKE THE U.S./CHINA TRADE DEAL:  Stocks rose all week in anticipation of, and then in reaction to, the U.S. and China signing what they are referring to as the Phase 1 trade agreement.  This agreement reduces (but does not eliminate) uncertainty that has slowed global economic growth.  As part of the deal, China agreed to buy an additional $200 billion in U.S. goods over the next two years.  The deal increases confidence in growth for both the Chinese and the U.S. economies, which will in turn give confidence to Europe and many other economies.  Coming during the same week was the ratification of the new USMCA (trade deal between U.S., Mexico and Canada) to replace NAFTA.  Investors jumped back into stocks with both feet.  With the new housing numbers coming in strong, that too buoyed markets which hit record highs once again this week.

RETAIL SALES UP:  In December, retail sales were 5.8% above what they were in December of 2018.

EARNINGS AND GDP:  This coming week, fourth quarter earnings reports will roll in, and the first trickle last week (about 7% of the S&P 500) indicates that beating estimates will once again be the trend.  The estimates, however, were rather low with an overall forecast of a 0.4% drop in profits versus the year previous.  We should also get the first estimate of the fourth quarter G.D.P. (measure of U.S. economic activity) growth rate.  Again, most predictions are quite modest (generally under 2% annualized rate).

SECURE ACT:  As many of you know, a new federal law was made effective last week which increased the age at which people must start taking money out of their retirement accounts from 70 and one half (70.5) to 72.  That seems straightforward enough, BUT, what if you turned 70.5 last year?  We had a client who fit into that category, and her husband is one year younger.  The bottom line is that she must take out the first required minimum distribution (RMD) for 2019 (the year she turned 70.5) AND she must take out a RMD for 2020, her 71st year.  Meanwhile, her husband who turns 70.5 this year can wait until he turns 72 to begin his RMDs.  She was just lucky I guess.

REFERENCES:

HERE COME THE NEW HOMES:  https://www.calculatedriskblog.com/2020/01/housing-starts-increased-to-1608.html; https://www.reuters.com/article/us-usa-economy-idUSKBN1ZG1KP
INVESTORS LIKE THE U.S./CHINA TRADE DEAL: https://www.cnbc.com/2020/01/15/heres-what-china-agreed-to-buy-from-the-us-in-the-phase-one-trade-deal.html; https://www.wsj.com/articles/global-stocks-rally-as-chinas-economy-shows-signs-of-stabilization-11579257122
RETAIL SALES UP: https://www.calculatedriskblog.com/2020/01/retail-sales-increased-03-in-december.html
HERE COME THE NEW LUXURY APARTMENTS: https://www.wsj.com/articles/aiming-at-wealthy-renters-developers-build-more-luxury-apartments-than-they-have-in-decades-11579084202?tesla=y
EARNINGS AND GDP: https://horsesmouth.com/a-review-of-the-bullish-elements-driving-stock